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Understanding civilian retirement plans

No matter how old you are, putting aside money for retirement is critical to your financial future. Waiting to plan is one of the biggest mistakes people make.

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How much will I need to put aside?

Many experts' rule of thumb is 10 percent of your income, but it varies based on a few key factors.


1. How many years you have left to work
2. What type of retirement lifestyle you want and how much it will potentially cost
3. You may need more than you think: Inflation may shrink the value of your money

Where will I put the funds?

Employer plans

These are employer-sponsored retirement investment accounts that you contribute to pre-tax, which may lower your overall taxable income. Employers may match some or all of the funds you contribute.

A traditional pension offers a defined benefit. That means it gives you a fixed, predictable payout in retirement, usually based on years of service and salary. An employer contributes to a pension for you; they're less common in non-government jobs.

Individual plans

(illustration copy) IRA

Individual retirement accounts are set up and funded by you, not an employer. Contributions may be tax-deductible.

(illustration copy) ROTH IRA

Roth IRAs are a type of individual retirement account: You contribute money after taxes, but when you withdraw the money in retirement, it's generally federal tax-free.

(illustration copy) Roy's Autobody

SEP stands for Simplified Employee Pension. It may be used if you're self-employed, freelance or a small-business owner, and has higher contribution limits than a traditional IRA.

What about my TSP?
The Thrift Savings Plan is the federal government's version of a 401(k), and you may have enrolled during service. If so, you have a number of options, including leaving the account as is or rolling it over into a new plan.

Each choice may offer different investment options and services, fees, expenses and rules. These are complex choices. Before rolling over your TSP, take time to compare plans.

What lingo do I need to know?

Some of the terminology associated with retirement accounts can be intimidating. Here are some basics to get you started.

You can generally invest in a variety of things, such as stocks, bonds and cash. Holding a variety of investments is called diversifying. The goal is to protect your portfolio: If one asset does poorly, others may not. However, diversifying your investments is not a guarantee against potential losses.

When your account makes money, those earnings can be reinvested, so not only might your original investment earn returns, your earnings may, too. The earlier you invest, the more opportunity your money has to compound. Note that investments can lose money.

Many investment accounts are managed by people or firms, and their services are usually paid for by the investor (you) via fees. Choosing an account with lower fees could potentially save you money over the life of your investment.

Now what?

If you're starting a full- or part-time job, talk to the human resources department about account choices. You may also want to consult with a financial professional about a strategy to fit your family's needs and goals.

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The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

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